IUL's 3 big costs
IUL has 3 big costs:
- Premium Loads: when you contribute the premium to the IUL policy, there is usually a premium load which comes off the top of the "gross premium" to arrive at the "net premium".
- Per Unit/Thousand Charges: these charges are a factor of the face amount, which is usually deducted monthly from the policy over a period of years. The duration and severity varies by product, buy a typical per-thousand charge happens in the first 10 years.
- Cost of Insurance (COI) / Mortality Charges: these are usually the most significant charges over the life of the policy and are deducted monthly. A good policy design could help minimize COI charges, for example, minimize non-MEC death benefits or option two death benefit switching to option one in the optimal year.
In next blogpost, we will use a case study to compare an IUL's costs with the values the policyowner would get.